Monster To Slash 800 Jobs; Reinvest in Product, Promotion

by , Jul 31, 2007, 6:00 AM
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Cutting costs in the face of intense competition, Monster Corp. plans to slash 15% of its workforce, or 800 jobs, by year's end. The news came amid disappointing earnings on Monday, as the company's second-quarter net income dropped 28% to $28.6 million, from $39.6 million last year. Sales rose 20% to $331.1 million, but missed analysts' average estimate of $337 million for the quarter.

"While I regret that workforce reduction is a necessary part of our plan, we believe this action is in the best interest of our customers and shareholders," Sal Iannuzzi, chairman and CEO of Monster Worldwide, said Monday.

As a result of the layoffs and further streamlining of operations, the company expects to save between $150 million to $170 million a year. Over the next year, Monster plans to invest about $80 million of that on unspecified product development and new technologies, along with advertising and promotional efforts to drive brand awareness and conversions.

"Our top priority is to invest in key areas that will improve the customer experience and foster solid revenue growth, while at the same time lowering our cost base and streamlining operations."

Analysts like Forrester Research's Peter Kim say Monster is sorely in need of some serious technical and design innovations.

"Monster is firmly rooted in a Web 1.0 world, while social sites like LinkedIn have moved in with new and more effective networking models," explained Kim.

"The economy is doing fantastic with all the jobs available today, so if business is going down [for Monster], it's the result of other factors like competition," Kim added.

Along with the constant threat posed by Craigslist, web businesses once thought benign to Monster's interests are fast encroaching on its territory. Casual social networks, for instance, like Facebook and Friendster have recently added free classified ad-listings to their networks.

And while MySpace has offered such services since its inception, Facebook in particular is seen by analysts as particularly well-suited to classifieds because of its tight-knit communities based largely on academic and professional affiliations.

Monster said operating profit will increase to 25% of sales by late 2008 from 18% in the second quarter. The company, however, said revenue this year might well miss analysts' forecasts due in part to its refusal to overcrowd Monster.com with ads, and pop-ups in particular.

Still, Monster's star is certainly not lost. In the booming local ad market, the company is one of several pure-play web players successfully taking market share from newspaper publishers. Google and Monster, among others, now control 33.2% of the market, according to a recent study by Borrell Associates, while newspapers still maintain a lead share of 35.9%.

Some analysts on Monday saw Monster's glass as half full. "We believe Street expectations may prove too low and Monster's diversified revenue and international margin expansion story will emerge as compelling investment catalysts in coming quarters," Tobey Sommer, a Sun Trust Robinson Humphrey analyst, wrote in a research note.

"We continue to believe the near-term investments and restructuring will yield ongoing revenue and margin improvements over the next several years, barring a recession," said Banc of America Securities analyst R.C. Robillard in a client note on Monday.

The layoffs will primarily impact non-sales related functions in North America, while portions of its global sales force with low productivity rates are at risk, the company said Monday.

The company also plans on centralizing certain non-revenue generating functions, such as human resources and finance, which had operated semi-autonomously within each business unit. This follows management's decision in early June to realign the business operations by function across the entire global organization.

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